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2005 (2) TMI 458 - ITAT DELHI-EDeduction of tax at source - Payments made to C&F agents - applicability of s. 194-I - camouflage transaction - agreement for services - Commission to its distributors and dealers in the form of incentives and discounts by using different names - relationship between the assessee and its distributors/dealers - Principal-to-Principal basis Or Principal and agent. HELD THAT:- Merely because the C&F agent stores the goods in the intervening period, the character of the payment made by the manufacturer to the agent does not undergo any change so as to call it rent either under general law or for the purposes of s. 194-I of the Act. Further, this being a contract for carrying out a work between the assessee and the agent, the assessee has deducted tax at source under s. 194C of the Act. The fact that s. 194C will apply to the impugned payment is clarified by the Board in its Circular No. 715, dt.8th Aug., 1995. The Board has also clarified by its Circular No. 720, dt.30th Aug., 1995, that each section under Chapter XVII deals with a particular kind of payment to the exclusion of all other sections in the chapter. Therefore, a payment is liable for tax deduction only under one section. Again, obviously the total payment received by the agent will also include rent as a part of the total cost, but that does not mean that the arrangement between the assessee and the agent is for the use of land or building. It is merely a component of total cost, the break-up of which was given by the assessee to the authorities. But, it does not attract the provisions of s. 194-I and, hence, the CIT(A) was not justified in holding it otherwise. In the final analysis, we hold that s. 194-I does not apply at all to the payments made by the assessee to its C&F agents. Commission to its distributors and dealers in the form of incentives and discounts by using different names - In the instant case, it is not in dispute that the distributorship/dealership arrangement is on principal-to-principal basis and not on principal-agent basis. This is also evident from the sample agreements placed on record. Clause 5.1 of the dealership agreement clearly indicates that the dealer will be purchasing the goods from the assessee. Clause 7 of the agreement stipulates that the dealer shall pay for the products ordered and accepted by it against delivery. Clause 6.1 of the agreement stipulates that the dealer is free to sell the goods at any price subject to the condition that it shall not be sold at a price beyond the maximum price suggested by the assessee. In our considered view, they are nothing more than incentives or motivators, which may drive the dealer to achieve certain targets, but certainly they cannot be called commission. They are various sales promotion schemes, which keep on coming and going. They may be area–specific, class of customer-specific, period-specific, etc. They are never permanent and, therefore, incentives earned from such schemes cannot be said to have been earned in the course of buying and selling the goods. The fact that these schemes do not form part of the agreement, itself suggests that they are not permanent and the profits of the dealer do not predominantly depend on these schemes. There may be a period during which no scheme may be in operation at all. But even in absence of a scheme, the course of buying and selling goes on. The quantum of incentives earned by a dealer may be dependant on the quantum of certain sales, but the normal buying and selling goes on irrespective of the schemes and, hence, these incentives cannot be termed as commission in the normal course of buying and selling the goods as envisaged in s. 194H of the Act. Accordingly, we hold that the assessee had not made any commission payment to any person and hence there was no question of deducting any tax at source u/s 194H of the Act. In the result, the appeal of the assessee is allowed.
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